Egypt’s Suez Canal monthly revenues expected to rise by end of FY: Fitch

Cairo – December 3, 2024: Fitch Solutions’ Ramona Mubarak, Head of MENA Country Risk, shared a cautious outlook for Egypt’s Suez Canal revenues, forecasting that it will improve in the next fiscal year with expectations that the monthly rate will increase and return to normal, helping to reduce the current account deficit to 3.8% in the coming fiscal year (FY2025/2026).

Mubarak explained that the Suez Canal, a major source of foreign currency for Egypt, used to generate around $750 million per month, but has seen revenues significantly decrease, averaging $300 million per month this year.

Egypt's foreign currency earnings are dependent on five key sources: exports, tourism revenues, Suez Canal earnings, remittances from expatriates, and foreign direct investments. Among these, remittances have become a critical factor in reducing the current account deficit, she noted.

According to Mubarak, remittances from Egyptians working abroad are expected to reach $28.7 billion this year, a 31% increase from $21.9 billion in the previous year. This surge is expected to bring Egypt's current account deficit down to 4.8% in the current fiscal year, from 6.8% recorded in FY2023/2024.

Remittances from expatriates reached their highest level in two years during the second quarter of 2024. The Central Bank of Egypt reported that remittances amounted to $7.5 billion between April and July 2024, compared to $5 billion in the first quarter, representing a 63% increase compared to the same period in the previous year.

A key factor behind the increase in remittances was the unification of the exchange rate in March 2024, as Mubarak stated that this move encouraged expatriates to shift from sending money via the parallel market to the banking sector, supporting the country's foreign currency inflows.

Looking ahead, Mubarak expects the unified exchange rate to continue bolstering remittance inflows, especially from Gulf Cooperation Council (GCC) countries, where many Egyptians work.

She noted that the GCC economies are projected to grow by 4.3% next year, compared to 2.1% in 2024, which could further benefit Egypt's foreign currency reserves via remittances.

In addition to remittances, the economy faces risks from declining foreign direct investment, as the country's foreign reserves are increasingly reliant on financial portfolios, which are considered an unstable funding source, Moubarak stated.

Moubarak expressed concern that this dependency may lead to a widening current account deficit if not addressed.

Egypt remains one of the top countries in the world for remittances, with the total for 2023 reaching $24 billion, according to World Bank estimates. It is believed that around 14 million Egyptians live and work abroad, with the majority residing in Gulf countries.